TOKYO – Japan has one year, maybe two, to resolve the ownership dispute over a tiny group of islands or risk an honest-to-goodness shooting war with China. Unfortunately, neither Japan’s diplomats nor public seem to realize the danger, says a leading expert on the territorial disputes plaguing America’s closest Asian ally.

“We have drifted to a place where we don’t want to be and we are running out of time,” says Kazuhiko Togo, director of the Institute for World Affairs at Kyoto Sangyo University. “We need to prepare ourselves militarily, and at the same time make every diplomatic effort to bridge the gap between Tokyo and Beijing. This really is becoming a casus belli.”

China this week cancelled a visit to Japan of its top uniformed military leader, and snubbed Prime Minister Yoshihiko Noda at a summit meeting in Beijing earlier month. Both actions were intended, at least in part, to express China’s displeasure with the dispute over the Senkaku Islands, known as Diaoyu in China, a group of five or so islets near Taiwan. The islands are administered by Japan, but are claimed by both China and Taiwan.

In recent weeks, Chinese officials have begun to refer to the Senkakus as a “core interest.” That’s the diplomatic equivalent of baring one’s teeth and emitting a low growl.

China has been aggressively modernizing its military and pressing territorial claims throughout the region. A monthlong standoff between China and Philippines patrol ships in an area called the Scarborough Shoals shows little sign of letup.

The Senkaku Islands dispute nearly came to blows in 2010, when Japan detained a Chinese fishing trawler for ramming an armed patrol ship. Japan eventually released the fishing boat and crew under diplomatic pressure, trade sanctions and a wave of anti-Japanese demonstrations in major Chinese cities.

Tokyo’s hard-line governor, Shintaro Ishihara, re-ignited the dispute last month when he announced plans to purchase three of the islands from private owners. A serial China-baiter, Ishihara says his aim is to prevent Beijing from acting on its claim in the Senkakus, although it’s whether he would have the legal authority to do this. He says he’s already raised more than $3 million from private donors for the purchase.

The Noda administration, meanwhile, responded by assigning formal names to dozens of previously un-christened islets and rock outcroppings in the region (China has done the same), and says it may or may not try to buy the three Senkaku islands before Ishihara does.

Togo faults Tokyo for fumbling the Senkaku dispute and allowing it to become an emotional issue for both sides. Long-standing grievances have crystallized and left little room for compromise or face-saving, he says. Where China sees an unrepentant Japan clinging to a legacy of colonial expansion, Japan sees an arrogant and erratic China once again bullying its smaller neighbors.

“Senkaku started out as a territorial issue for Japan and China, but it is in very serious danger of becoming an entirely historical-memory issue for both countries. If that happens, I don’t see a way out,” says Togo, a former senior Foreign Ministry official and author ofJapan’s Territorial Problem: The Northern Territories, Takeshima, and the Senkaku Islands.

Yang Yi, former director of the Institute for Strategic Studies at the National Defense University in Beijing, worries that the dispute could trigger an arms escalation, if not an outright shooting war. China’s air and sea forces have increasingly encroached on territory around Japan’s southwestern islands, while Japan has begun reinforcing those islands and building more mobile and flexible air and ground forces.

“We have much more urgent things to do. Let’s not back each other into a corner,” says Yang.

Japan has administered the Senkakus since 1895. China claimed ownership in 1971, shortly after oil was discovered, but both sides agreed to let “the next generation” resolve the issue. The islands are located about 200 miles from Taiwan, at the tip of Japan’s southwest island chain.

Emotions are playing role in Japan’s other two territorial disputes. A visit by South Korea’s defense minister, scheduled for the end of this month, was called off, and the signing of the first-ever defense pact between Japan and South Korea has been delayed indefinitely because of the dispute over ownership of Takeshima Island, known reverently among South Koreans as Dokdo.

Although South Korean police and military have occupied the island since the 1950s, officials in a neighboring prefecture of Japan began observing an annual “Takeshima Day” in 2005 to express their displeasure with a failed fishing treaty and pressure Tokyo. The result has been to infuriate the Koreans.

Similarly, Japan’s insistence on the return of all four islands of its Northern Territories – seized by the Soviet Union in the waning days of World War II – has hampered negotiations for decades. Russian President Vladimir Putin, who took office this month, has signaled a willingness to resume negotiations over two of the islands this year, but could turn to South Korea or other regional rivals to help develop the islands if Japan balks.

Whether a shooting war with China over the Senkaku Islands would inevitably involve Americans is unclear. Article 5 of the US-Japan Security Treaty commits the US to Japan’s defense, even if the territory under attack is merely under Japan’s ‘administrative control,’ as is the case of the Senkakus.

But says Togo, “If our diplomacy is so stupid as to incite China to attack Japan, could we then approach the United States and say, ‘Hey, we have a war’?”

Spitzer is a veteran journalist and defense correspondent, based in Tokyo. He has covered nearly every major U.S. military deployment since Operation Desert Shield and Desert Storm and has made more than a dozen reporting trips to Iraq and Afghanistan.